MRO Forecast and Market Trends - IATA ??0 MRO Forecast and Market Trends Presented by: Martin...

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Transcript of MRO Forecast and Market Trends - IATA ??0 MRO Forecast and Market Trends Presented by: Martin...

  • 0

    MRO Forecast and Market Trends

    Presented by:

    Martin HarrisonManaging Director ICF International

    martin.harrison@icfi.com

  • 11

    Todays Agenda

    Follow the Money

    MRO Forecast

    Impact of New Technology Aircraft

    Trends to Watch:

    The Mod Squad

    March of the Middle East Titans

    Amazon the Disrupter

    Training 2.0: Virtual Reality

  • 22

    Follow the Money

  • 33

    Airlines are

    achieving

    historically high

    return on invested

    capital (ROIC)

    levels, and clearly

    correlated with the

    drop in fuel costs

    Source: IATA, ICF Analysis

    Fuel Price and Global Airline Return On Invested Capital

    0.0%

    1.0%

    2.0%

    3.0%

    4.0%

    5.0%

    6.0%

    7.0%

    8.0%

    9.0%

    10.0%

    $0

    $20

    $40

    $60

    $80

    $100

    $120

    $140

    Jet Fuel Price ($/barrel) Airline ROIC (%)

    Airline ROIC

    Jet Fuel Price

  • 44

    Driven by the

    significant drop in

    fuel costs and

    consolidation, the

    airline industry is

    achieving record

    profitability

    Source: IATA, ICF analysis

    These are good days for some, but not

    all

    Global Airline Profitability, 1996 - 2016F

    -$30

    -$20

    -$10

    $0

    $10

    $20

    $30

    $40

    $USD

    Billions$36.3B

    Asia Pacific, $6.6B

    North America, $19.2B

    Europe, $8.5B

    Middle East, $1.7B

    Latin Am. / Africa = $0.3B

  • 55

    However, profit

    margin

    improvement has

    been largely limited

    to carriers in North

    America and

    Europe

    Source: IATA, ICF Analysis

    -1.8%

    -4.7%

    0.1%

    2.3%1.0%

    -0.9%

    3.4%4.7%

    0.7%1.5%

    3.0%

    -0.4%

    14.2%

    6.9% 6.4%

    3.2% 3.2%

    -0.2%

    -10.0%

    -5.0%

    0.0%

    5.0%

    10.0%

    15.0%

    20.0%

    2008

    2012

    2016F

    Airline EBIT Margin by Region

  • 66

    Four external

    macro-economic

    forces are having a

    significant impact

    on the aviation

    industry

    The CRABS

    Currency Exchange Rates Global Commodity Prices

    Chinas Economic SlowdownFuel Costs

    Source: ICF analysis

  • 77

    The dramatic increase

    in oil & gas market

    supply and reduceddemand for

    commodities has led

    to a strong US Dollar

    Partially offsets the positive impact of low fuel costs for operators

    Increases the cost of dollar based flight hour agreements (and parts/material in general)

    Cost of labor for in-country MROs is cheaper driving up margins for US dollar based contracts

    Buying/leasing aircraft becomes more expensive

    FOREX Impact

    Source: Oanda historical exchange rates, ICF analysis

    The CRABS: Countries with economies that are

    heavily dependent on commodity exports

    Global Currency Exchange Rates vs USD% Value Change, April 2014 April 2016

    Russian Ruble-87.1%

    Brazilian Real-62.2%

    S. African Rand-35.8%

    Can Dollars-23.6%

    Aus Dollars-20.4%

    Euro-16.9%

    British Pound-15.5%

    Indian Rupee-10.3%

    Japanese Yen-9.0%

    Chinese Yuan-4.8%

    -100%

    -90%

    -80%

    -70%

    -60%

    -50%

    -40%

    -30%

    -20%

    -10%

    0%

    10%

    B

    R

    C

    S

    A

  • 88

    Airlines with the

    highest net income

    are concentrated in

    North America

    Source: Airline Weekly, Airline Monitor, ICF Analysis

    Excludes Special Items

    $0

    $2

    $4

    $6

    $8

    $0$100$200$300$400

    $0.0$0.5$1.0$1.5$2.0$2.5

    $0.0

    $0.5

    $1.0

    $1.5

    $2.0

    -$50

    $0

    $50

    $100

    $150

    $200

    $0.0

    $0.5

    $1.0

    $1.5

    $2.0

    Tho

    usa

    nd

    s

    Top 5 Profitable Airlines by Net Profit (2015) & by Global Region

  • 99

    Airlines with the

    highest profit

    margins tend to be

    LCCs

    Source: Airline Weekly, Airline Monitor, ICF Analysis

    -10%

    0%

    10%

    20%

    30%

    40%

    -10%0%

    10%

    20%

    30%

    40%

    -10%0%

    10%20%30%40%

    -10%0%

    10%20%30%40%

    -10%

    0%

    10%

    20%

    30%

    40%

    -10%0%

    10%20%30%40%

    Top 5 Profitable Airlines by EBIT Profit Margin (2015) & Global Region

  • 1010

    Airlines are

    investing their newly

    found profits in

    three primary areas:

    Source: ICF Analysis

    1. Capex ~ 49%: Fleet renewal,

    Airport facilities & lounges

    Cabin modifications, etc.

    2. Investors ~ 34%: Debt repayment

    Stock buybacks

    Dividends

    3. Employees ~ 17%: Profit sharing

    Wage increases & bonuses

    New hiring

  • 1111

    MRO Forecast

  • 1212

    The current

    commercial

    air transport fleet

    consists of over

    27K aircraft

    Source: CAPA 2015

    NarrowbodyJet

    WidebodyJet

    Turboprop

    Regional Jet

    27,114

    Aircraft

    14%

    53%14%

    19%

    By Aircraft Type By Global Region

    North America

    Asia Pacific

    Europe

    Latin America

    Middle East

    31%

    27%

    25%

    8%

    5% 5%

    27,114

    Aircraft

    2015 Global Commercial Air Transport Fleet

  • 1313

    Current air transport

    MRO demand is

    $64.3B; Asia Pacific

    is now equivalent to

    North America and

    Europe

    Source: ICF International

    Engines

    Components

    Line

    Airframe

    Modifications

    14%

    17%

    22%

    40%

    7%North

    America

    Asia Pacific

    Europe

    Middle East

    Latin America

    Africa

    29%

    28%

    26%

    8%

    6%4%

    $64.3B$64.3B

    By MRO Segment By Global Region

    2015 Global MRO Demand

  • 1414

    The combination of

    strong air travel

    demand and the

    need to replace

    ageing aircraft will

    drive fleet growth at

    3.4% annually

    Source: ICF International, CAPA 2015

    Air traffic growth of ~4.1%

    Fuel costs in $55/bbl range

    ~19,600 aircraft deliveries

    ~8,800 aircraft retirements

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    35,000

    40,000

    2015 2025

    Africa

    Middle East

    Latin America

    Europe

    Asia Pacific

    North America

    27,100

    31% 26%

    37,900

    27%

    25%

    8%

    32%

    23%

    8%

    # Aircraft

    3.8%

    2.5%

    1.6%

    5.2%

    5.3%

    5.1%

    CAGR

    3.4% Avg.

    5%

    6%

    10 Year Global Air Transport Fleet Growth

  • 1515

    The global MRO

    market is expected

    to grow by 4.1%

    per annum to $96B

    by 2025

    Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

    $0

    $10

    $20

    $30

    $40

    $50

    $60

    $70

    $80

    $90

    $100

    2015 2025

    Modifications

    Airframe

    Line

    Component

    Engine

    40%

    22%

    14%

    17%

    $64.3B

    $96.0B

    2.8%

    3.6%

    4.3%

    4.4%

    CAGR

    4.1% Avg.

    5.3%

    41%

    22%

    16%

    13%

    10 Year Global MRO Demand Growth

  • 1616

    Over the next

    decade, China and

    Asia Pacific region

    will drive absolute

    MRO spend growth

    Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

    Difference in MRO Spend, 2025 vs. 2015 By Global Region

    $ USD Billions

    $7.9

    $6.4$5.2

    $3.2$2.6 $2.2 $2.0

    $1.2$0.0

    $1.0

    $2.0

    $3.0

    $4.0

    $5.0

    $6.0

    $7.0

    $8.0

    $9.0

    Asia Pacific(excl China)

    China Middle East NorthAmerica

    LatinAmerica

    EasternEurope (incl

    CIS)

    Africa WesternEurope

    71% 93% 103% 17% 73% 72% 85% 10%Percent

    Change:

  • 1717

    2014 Top 10 Airframe MROs by Man-Hours Performed

    In Millions

    Among the top ten

    airframe MRO

    providers, two Asia

    based MROs

    account

    for 50% of heavy

    airframe check

    man-hours

    performed in 2014

    Source: Aviation Week

    12.0

    11.7

    4.9

    3.6

    3.0

    2.9

    2.9

    2.2

    2.0

    2.0

    ST Aerospace

    HAECO

    AAR

    AFI KLM E&M

    Lufthansa Technik

    GAMECO

    Turkish Technic

    Evergreen Aviation Tech.

    Aviation Technical Services

    Sabena Technics

  • 1818

    Impact of

    New Technology Aircraft

  • 1919

    In the next decade,

    the global fleet of

    new generation

    aircraft fleet will

    grow by approx.

    531% to nearly

    19,000 aircraft

    10-Year Fleet Forecast by Aircraft Generation

    2,993

    18,896

    22,212

    18,487

    2015 2025

    Global

    New Gen

    Mid Gen

    Old Gen

    Source: ICF International

    Old Gen: 727, 737 Classic, 747 Classic, DC10, L1011, A300

    Mid Gen: 757, 767, 747-400, A320 Family, A330/A340, 737NG, 777, ERJ, CRJ

    New Gen:, 777X, 787, A350, A330neo, A380, E170/175/190/195, CRJ-7/9/1000, 737MAX

    Asia Pacific

    +531%

    -70%

    -17%

    613

    6,1016,296

    5,838

    2015 2025

    +895%

    -7%

    -61%

  • 2020

    Over th